Indian benchmarks give thumbs up to Union budget; ends at three-month high

Indian benchmark indices staged a smashing performance on Wednesday by vehemently rallying over one and half percent in the session and re-conquering their psychological levels. Investors continued to build hefty positions across the board as finance minister Arun Jaitley made no reference to long-term capital gains tax on equities, and also set a comfortable fiscal deficit target of 3.2% for the fiscal year 2017-18. He also propose to infuse Rs 10,000 crore in public sector banks and allocating a record Rs 3.96 lakh crore to infrastructure sector as well as granting infra status to affordable housing. The focus of the budget continues to remain on improving the macros as government has not succumbed to the populist expectations. He also delivered a big relief to foreign portfolio investors (category I and II) by exempting them from indirect transfer provisions (Vodafone tax). The Finance Minister made it clear that he does see demonetisation’s effect spillover to the next fiscal. According to Jaitley, India's Current Account Deficit declined from about 1% of GDP last year to 0.3% of GDP in first half of 2016-17. Adding optimism among investors, Prime Minister Narendra Modi described the Budget as ‘futuristic’ with an aim on fulfilling the ‘dreams’ of every section, including the poor, the farmers and the under-privileged, while focusing on job creation, transparency, urban rejuvenation and rural development. He said the Budget is a key link between the work done by his government over the last two-and-a-half and the steps that it will be taking in the future as part of its vision to take the country on the path of development. Furthermore, market participants got some comfort after Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) monthly survey rebounded from demonetization downturn in January amid rising order books, production as well as buying levels and the expansion in the sector by increasing 50.4 in January from 49.6 in December. Some support also came with report that Growth in eight core sectors expanded at a faster pace of 5.6% in December 2016, against the 4.9% growth recorded in November 2016, supported by double-digit expansion in the steel sector. Meanwhile, shares of irrigation and fertiliser companies rose after Jaitley, in his Budget presentation said the agriculture sector is expected to grow at 4.1% in 2016-17 thanks to better monsoon, while real estate stocks moved higher on a slew of budgetary stimulus to real estate sector. However, IT stocks continued to fall on visa fears as H1B visa Bill to double minimum wages for H1B visa-holders was tabled in the US Congress.

On the global front, Asian equity markets ended mostly in green on Wednesday, with Japanese shares rising after the yen stopped its ascent following Abe's remarks and the latest survey from Nikkei showing Japan's manufacturing sector picked up steam in January, with a PMI score of 52.7, up from 52.4 in December. Furthermore, Chinese manufacturing as well as services sector data suggested that China's recent recovery remains largely intact at the start of the New Year. China's official manufacturing Purchasing Managers Index (PMI) for January came in at 51.3, higher than a forecast of 51.2, while the services sector PMI edged up to 54.6 from 54.5 in December. However, Investors remained cautious ahead of the US Federal Reserve's latest monetary policy decision due later in the day. While the Fed is widely expected to leave interest rates unchanged, investors are likely to keep a close eye on the accompanying statement. Meanwhile, Stocks across Europe bounced higher in early trade, with a round of better-than-expected corporate earnings reports kicking off trading in February.

Back home, the local benchmark got off to a soft start as the indices showed signs of consolidation in morning trade, ahead of the Union budget. However, the bourses capitalized on the momentum and spurted in afternoon trades on the back of broad based buying in frontline stocks. The northbound journey only concluded with the close of the session helping the key gauges in recovering the ground lost in the last two sessions. Finally, the NSE’s 50-share broadly followed index Nifty, got buttressed by close to two percent to settle above the crucial 8,700 support level, while Bombay Stock Exchange’s Sensitive Index-Sensex accumulated over four hundred points and closed above the psychological 28,100 mark. Moreover, the broader markets too participated in the rally and closed with gains of over one and half percent.

The market breadth remained optimistic, as there were 1400 shares on the gaining side against 1378 shares on the losing side, while 218 shares remained unchanged.

Finally, the BSE Sensex gained 485.68 points or 1.76% to 28141.64, while the CNX Nifty was up by 155.10 points or 1.81% to 8,716.40. 

The BSE Sensex touched a high and a low of 27725.16 and 27590.10, respectively and there were 18 stocks on gainers side as against 12 stocks on the losers side on the index.

The broader indices ended in green; the BSE Mid cap index jumped 1.77%, while Small cap index was up by 1.68%.

The top gaining sectoral indices on the BSE were Realty up by 4.83%, Auto up by 3.46%, FMCG up by 2.79%, Bankex up by 2.76% and Metal up by 2.28%, while IT down by 1.25% and TECK down by 0.88% were the only losing indices on BSE.

The top gainers on the Sensex were Maruti Suzuki up by 4.69%, Mahindra & Mahindra up by 4.64%, ITC up by 4.51%, ICICI Bank up by 4.40% and SBI up by 3.96%. On the flip side, TCS down by 2.71%, Infosys down by 1.37%, NTPC down by 1.27%, Sun Pharma down by 1.06% and ONGC down by 0.94% were the top losers.

Meanwhile, India’s manufacturing growth revived in the first month of 2017 coming from a contraction in December triggered by the government's scrapping of high value banknotes. The growth was supported by the increase in order books, production and buying levels. The seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI) - a composite single-figure indicator of manufacturing performance - rose to 50.4 in January from 49.6 in December. As per the report, a reading above 50 indicates economic expansion.

The report stated that greater production needs encouraged companies to purchase more inputs, but failed to generate jobs in the sector. On the price front, it said that input cost inflation climbed to its highest mark since August 2014, while output charges were raised for the eleventh successive month. Also, rates of expansion were only slight, but reversed the contractions noted in December. In contrast to the upturn in total new business, new export orders fell again. As per the report, intermediate goods were the bright spot in January, with rates of expansion in both new work and production outstripping those seen in the consumer goods sector, and investment goods dipped into contraction.

The survey data pointed to an increasing degree of pressure on the capacity of manufacturers’ operations as backlogs rose at a quicker rate than in December. In spite of this, companies kept their payroll numbers unchanged in January. Additionally, holdings of finished goods decreased in January, amid evidence from survey participants of orders being fulfilled directly from stocks. The rate of depletion was marked, and the quickest since last May. Concurrently, pre-production inventories declined slightly, but at a pace that was the fastest in over three years.

The CNX Nifty traded in a range of 8,722.40 and 8,537.50. There were 37 stocks in green as against 14 stocks in red on the index.

The top gainers on Nifty were Bosch up by 6.19%, Maruti Suzuki up by 5.10%, Bank of Baroda up by 4.87%, Eicher Motors up by 4.74% and ICICI Bank up by 4.61%. On the flip side, TCS down by 2.91%, Aurobindo Pharma down by 2.32%, Idea Cellular down by 2.27%, Infosys down by 1.36% and ONGC down by 1.14% were the top losers.

The European markets were trading in green; UK’s FTSE 100 increased 65.94 points or 0.93% to 7,165.09, Germany’s DAX increased 107.37 points or 0.93% to 11,642.68 and France’s CAC increased 50.76 points or 1.07% to 4,799.66.

Asian equity markets ended mostly higher on Wednesday, with Japanese shares rising after the yen stopped its ascent following Abe's remarks and the latest survey from Nikkei showing Japan's manufacturing sector picked up steam in January, with a PMI score of 52.7, up from 52.4 in December. Japan’s Prime Minister Shinzo Abe told parliament that the central bank's ultra-loose monetary policy was not aimed at devaluing the yen. Further, Chinese manufacturing as well as services sector data suggested that China's recent recovery remains largely intact at the start of the New Year. China's official manufacturing Purchasing Managers Index (PMI) for January came in at 51.3, higher than a forecast of 51.2, while the services sector PMI edged up to 54.6 from 54.5 in December. Though, comments from the Trump administration that the US will combat currency manipulation to support American companies coupled with caution ahead of the US Federal Reserve's latest monetary policy decision due later in the day limited overall gains across the region to some extent. Markets in China, Malaysia and Taiwan were closed for public holidays.